Question 1

Those who criticize individuals who choose to drive a relatively inefficient sport utility vehicle (SUV)might mistakenly

Accepted Answer

Those who criticize SUV drivers might assume that everyone faces the same relative prices, has the same preference set, and has the same budget constraint. However, these assumptions may not be true for everyone and can vary depending on individual circumstances.

Question 2

If MRS > MRT,then the consumer is better off than at equilibrium.

Accepted Answer

MRS > MRT implies that the consumer values the next unit of "x" more than it costs to obtain it.That is,there is a gain from trade to be made.As more "x" is purchased,MRS falls and eventually MRS = MRT.At this point,all gains from trade have been made.

Question 3

One reason a gift card might be less desirable than cash?

Accepted Answer

A gift card limits the choices to a particular store or chain, whereas cash can be used anywhere. This restricts the flexibility of the recipient to choose what they want, potentially making it less desirable.

Question 4

-Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If the price of burger increases,which of the following bundles are in Max's opportunity set?

Accepted Answer

The answer of 
-Max has allocated $100 toward meats for...

Question 5

Rank-order the following three gifts in terms of potentially providing the highest utility to the lowest: 1)A new video game; 2)A gift card to a video game store; 3)Cash.

Accepted Answer

Cash has the highest potential utility as it can be used for any purpose, not just for purchasing video games. Gift card to a video game store has medium utility as it can only be used at a specific store to purchase video games. A new video game has the lowest potential utility as it provides only entertainment and pleasure, which are not essential needs. Therefore, the rank order from highest to lowest utility is 3 (cash), 2 (gift card), and 1 (new video game).

Question 6

Joe's indifference map for lobster and soda is shown in the above figure along with his budget line.Will Joe choose point a? Explain your answer in terms both of MRS and the level of utility.

Accepted Answer

The answer of Joe's indifference map for lobster and soda...

Question 7

-Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If Max is currently at point d,

Accepted Answer

At point d, Max's marginal rate of substitution (MRS) is steeper than the budget line, indicating that he values the trade-off between chicken and the other meat differently than the market does (A). This means he is willing to give up more chicken for the other meat than what the market requires (B), showing that he is not at his highest possible utility given his budget, hence not maximizing his utility (C).

Question 8

-Max has allocated $100 toward meats for his barbecue.His budget line and indifference map are shown in the above figure.If Max is currently at point e,

Accepted Answer

At point e, Max is not at the point where his budget line is tangent to an indifference curve, indicating that he could achieve a higher level of satisfaction by adjusting his consumption bundle. This means he is willing to give up more of one good than necessary (burger in this case), given the market prices, and the absolute value of his Marginal Rate of Substitution (MRS) is indeed less than the trade-off offered by the market, showing he is not maximizing his utility.

Question 9

If the food stamp program in the United States moved from coupons redeemable for food to cash payments

Accepted Answer

If the food stamp program moved to cash payments, some people might choose to spend their money on items other than food, but for those who are struggling to afford enough food, they might prioritize food purchases even without coupons specifically for food. For these individuals, cash payments could provide flexibility and allow them to purchase higher quality or more nutritious food, which would ultimately improve their overall well-being (i.e., obtain a higher level of utility). However, it is also possible that some individuals might choose to spend their cash payments on non-food items, which could lead to a lower level of utility if they prioritize other goods over access to enough healthy food.

Question 10

Robinson Crusoe is stranded on an island.He finds that coconuts are freely available (zero harvest cost),but fish are difficult to harvest and require a lot of energy.As a result,harvesting fish has a high price.If coconuts and fish are imperfect substitutes,what is Robinson Crusoe likely to consume?

Accepted Answer

The answer of Robinson Crusoe is stranded on an island.He...

Question 11

People derive utility in their lives from consuming goods (all other goods),g,and clean air (measured as the number of particulates removed per m³),a,as measured with the utility function U(g,a)= g^0.6a^0.4.The price index of consumer goods equals $20 per day.Income equals $1000.What is likely to happen to the number of asthma cases as the price of clean air (abatement cost)increases from $10 to $20?

Accepted Answer

As the price of clean air increases, individuals can afford less of it, leading to more particulates in the air, which likely increases asthma cases.

Question 12

John is indifferent between canned soup and fresh soup.Canned soup sells for $1 per serving and fresh soup sells for $2 per serving.Assuming that John has allocated $4 toward soup,how will he spend it? Explain your answer by drawing John's budget line and indifference curves.

Accepted Answer

The answer of John is indifferent between canned soup and...

Question 13

An interior solution to a consumer's utility maximization problem implies

Accepted Answer

An interior solution means that the consumer is consuming a positive amount of all goods. This is because an interior solution occurs when the consumer is consuming a positive amount of all goods up to the point where the marginal utility per dollar spent is equal for all goods. Any negative consumption would not be feasible or rational, and not consuming an optimal amount of any good would mean that the consumer could increase their overall utility by adjusting their consumption.

Question 14

Cash may be preferred to food stamps because additional cash

Accepted Answer

Cash provides greater flexibility than food stamps because it can be used to purchase a wider variety of goods and services, effectively increasing the consumer's purchasing power and shifting out the budget constraint at every point.

Question 15

Consumers do not prefer gifts-in-kind to cash gifts.

Accepted Answer

It is possible the consumer would buy the same gift with cash and therefore be just as well off.If the consumer bought something other than the gift,that means that this something else is preferred to the gift.At best,the gift yields the same utility as would have been achieved with the cash,but never more.

Question 16

Data shows that United States college students purchase more e-books than German college students.Assuming that all students have identical preferences for e-books and textbooks,what is the likely explanation for this result?

Accepted Answer

The answer of Data shows that United States college students...

Question 17

If income increases due to a decrease in taxes,then

Accepted Answer

With an increase in income due to a decrease in taxes, consumers can afford a larger bundle of goods which leads to an increase in their utility.

Question 18

One reason more sport utility vehicles (SUVs)are driven in the United States than in Europe is

Accepted Answer

Marginal rates of substitution and transformation refer to economic concepts that do not directly affect SUV consumption. The US not having a recession since 2000-2001 is not the main reason for SUV popularity, as SUV sales were strong even during and after the 2008 recession. Therefore, the best explanation is that either different marginal rates of substitution or transformation (i.e. consumer preferences and market supply) between the US and Europe are driving the difference in SUV consumption.

Question 19

Joe subscribes to an Internet provider that charges $2 per hour.He has $100 per month to spend and is at equilibrium by buying 10 hours of Internet access and $80 worth of other goods.Draw the indifference curve-budget line.If the company switches to a $20 monthly fee for unlimited Internet access,is Joe better off?

Accepted Answer

The answer of Joe subscribes to an Internet provider that...

Question 20

-Max has allocated $100 toward meats for his barbecue.His budget line and an indifference map are shown in the above figure.Which of the following bundles are in Max's opportunity set?

Accepted Answer